The Trend Is Your Very-Hard-To-Read Friend

As Marcel Link says in his excellent High Probability Trading:

"A funny thing about trading is that what one person sees as a strongly trending market another person sees as an overbought market that is ready to reverse."

That is true on so many levels. First, most basic and most confusing, different indicators on different time frames can give you a totally contradictory read on the market. What appears to be a clear uptrend on a 30-minute chart, say, with rising Stochastics and rising moving averages can, at the very same time, look like an equally convincing downtrend on the corresponding 5-minute chart with falling Stochastics and falling moving averages.

The easiest explanation for this phenomenon is that it could be a quick correction within a larger upward move. If your trading time frame can be counted in hours or even days, the fact that the market or instrument you're long is crashing on the 5-minute chart should be of little relevance. What's happening on the 30-minute chart, on the other hand, matters a great deal. By the way, I'm dispensing with charts, mostly out of laziness but also because I'm trying to think this through in a general, almost abstract way.

I guess another way to understand Link's statement is to realize that the trend - or any visual conclusion one can deduce looking at a chart - is in the eye of the beholder. This goes back to the fact that classic Technical Analysis - by which I mean charting, visual pattern-recognition and more generally non-quantitative, non-systematic TA - is subjective, an art rather than a hard science. [As an aside, that is the kind of TA that is largely loved, utilized and respected in the TA community but reviled and ridiculed in the academic and fundamental analysis communities.]

Indeed, you and I could be looking at the very same chart, same time frame, same indicators, same trend lines and yet come to wildly different conclusions. It could be because you and I have more or less conscious and acknowledged preconceptions about where the particular market or instrument we're looking at is headed, preconceptions that may be based on factors unrelated to the chart at hand. It could also be because we are very different people personality-wise, we have different psychologies and worldviews. Let's say I'm a congenital pessimist, a glass half-empty kind of guy, the kind of person who stops at green lights because, hey, they eventually and inevitably turn red so I might as well stop now (not that I actually do that). And, for the sake of symmetry, let's assume you're a sunny optimist. A strong, lasting, robust trend with nicely up trending moving averages and trend lines, and rising, just-a-tad-oversold oscillators, will spell doom to me and an all-clear to you.